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Medium-term FDs: Medium term FDs can be your best bet if you need money in 1-5 years for a specific purpose like buying a car etc. It is better to opt for bank deposits over company deposits, which do offer high returns but are risky. The medium-term FDs provides higher interest rate than short-term FDs and it is as safe also. If you think that you are going to need this money at a particular time, it is better to shift that money from your saving account to medium-term fixed deposit.
Sachin is in possession of extra cash and he is planning to invest it. He enquired about the fixed deposit rates at various banks. He came to know that different banks offer different interest rates. He just wondered what effect a 1% difference in interest rate can have on his investment.
Sachin started by taking an example of investment of Rs. 100000. He took the various interest rates and he came up with the following table for the value of the investment in different years:
Ramesh is in possession of extra cash and he is planning to invest it. He enquired about the fixed deposit rates at various banks. He also came to know that different banks compound the investment in different times i.e. monthly, quarterly, half-yearly and annually. He could not understand the implications of compounding the investment in different times. So, he approached his friend Narendra, who is a financial analyst
Narendra started by giving an example of investment of Rs. 1000 for 5 years. He took the various interest rates and different compounding periods. After a simple analysis, he came up with the following table showing the value of the investment:
Fixed-income securities represent the debt of domestic financial institutions, companies, banks, and government issues. In essence, when you buy a fixed-income security, you are lending money to the issuer for a specified period of time. In return, you expect the issuer to make regular interest payments (annually, semi-annually, quarterly, or monthly) and to pay back the face amount on the maturity date (the end of the specified period for the loan).
Fixed-income instruments in India typically include company bonds, fixed deposits and government schemes. One of the key benefits of fixed-income instruments is low risk i.e. the relative safety of principal and a predictable rate of return (yield). If your risk tolerance level is low, fixed-income investments might suit your investment needs better.